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ORIE_3150_Homework__3_spring_2009_solutions

ORIE_3150_Homework__3_spring_2009_solutions - ORIE 3150...

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ORIE 3150 Homework #3 Due February 11, 2009 1. Roberta Lerner, accountant at Wilson Industries, is performing an assessment of the accounts receivables at the end of the 2008 fiscal year. First, Lerner finds that the existing credit balance in Allowance for Uncollectible Accounts is $45,000. Next, she finds that the Accounts Receivable balance is $1,381,000, debit. Through past experience, Lerner has found that accounts not yet due proved uncollectible 0.4% of the time, accounts past due less than 30 days proved uncollectible 3% of the time, accounts 30 days to 59 days past due proved uncollectible 12% of the time. For accounts 60 to 89 days past due, the figure was 60%, and for accounts 90 days or more past due, the uncollectible fraction was estimated to be 90%. Lerner looks over the entire Accounts Receivable record and finds the following amounts in each category: Age Amount not due $800,000 <30 days past due $420,000 30-59 days past due $90,000 60-89 days past due $60,000 90 days or more $11,000 a. Perform an aging of the accounts receivable and provide the adjusting journal entry that must be made to account for Bad Debt Expense during 2008. 800,000 × 0.004 + 420,000 × 0.03 + 90,000 × 0.12 + 60,000 × 0.6 + 11,000 × 0.9 = $72,500 The desired balance in Allowance for Uncollectible Accounts is $72,500. The current balance (prior to adjustments) is $45,000. So, $27,500 must be added to it. Dec. 31, 2008 Bad Debt Expense 27,500 Allowance for Uncollectible Accounts 27,500 b. The balance in Accounts Receivable was $1,247,500 at the start of 2008. During the year, accounts totaling $37,400 were written off. Sales on account totaled $11,780,000 for the year. Find the amount of cash collected from credit customers during the year.
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Look at the T-account: Accounts Receivable Beg.
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